The Role of Profitability in Mediating the Effect of Financial Performance on Stock Returns: An Empirical Study of LQ45 Companies (2021–2025)

Abstract

This study aims to analyze the effects of Current Ratio (CR), Debt to Equity Ratio (DER), and Total Asset Turnover (TATO) on Stock Returns, with Return on Equity (ROE) as a mediating variable, in companies included in the LQ45 index during 2021–2025. The study was motivated by Indonesian capital market volatility during the research period and inconsistent findings in previous studies concerning financial ratios and stock returns. A quantitative approach with an associative-causal research design was employed. The sample was selected using purposive sampling, resulting in 16 companies that met the established criteria. Data analysis was performed using panel data regression and path analysis with EViews 14. The results show that DER and TATO have positive and significant effects on ROE, while CR has no significant effect on ROE. ROE has a positive and significant effect on Stock Returns, whereas CR, DER, and TATO do not have significant direct effects on Stock Returns. Furthermore, ROE mediates the effects of DER and TATO on Stock Returns but does not mediate the effect of CR on Stock Returns. These findings indicate that profitability plays an important role in linking financial performance to Stock Returns among LQ45 companies during the research period.